T buys 1,000 shares of CDE stock at $40 per share on February 10 of Year 1 (total price of $40,000). The CDE stock rises in price; T buys another 1,000 shares at $60 per share on March 10 of Year 1 (total price of $60,000). As the stock price levels off, T buys a final 1,000 shares on March 30 of Year 1 at $62 per share (total price of $62,000). All shares of CDE stock purchased by T are left in the custody of his broker (“Broker”). The CDE stock continues to rise in price. On March 15 of Year 2, T instructs Broker to sell 1,000 shares of CDE. The CDE shares are sold at $100 per share (total price of $100,000). Assume no further events take place with regard to T, Broker, or the CDE stock. What is the tax treatment of T’s sale of 1,000 shares of CDE stock on March 15 of Year 2?

1. A. T has $60,000 of long-term capital gain.
2. B. T has $40,000 of long-term capital gain.
3. C. T has $38,000 of short-term capital gain.
4. D. T is deemed to have sold a pro rata portion of each block of stock, with gain and holding period determined accordingly.

Investor purchases three contiguous acres of land for $300,000 in Year 1. Acre 1 is right on a lake, with excellent views, and worth $200,000 at the time of purchase. Acres 2 and 3, further from the lake and closer to a noisy road, are each worth $50,000 at the time of purchase. Values change after the purchase. The acres near the highway becomes less desirable as traffic grows, but the acre on the lake becomes more valuable as the town stocks fish in the lake. In Year 3 Investor sells Acre 2 for $40,000; and in Year 4 sells Acre 3 for $35,000. What tax consequence to Investor?

1. A. Investor reduces her basis for the remaining land by $40,000 in Year 3 and by $35,000 in Year 4, but realizes no gain or loss until the remaining acre (Acre 1) is sold.
2. B. Investor realizes and recognizes a loss of $10,000 in Year 3 ($50,000 basis less $40,000 sales price received); and a loss of $15,000 in Year 4 ($50,000 basis less $35,000 sales price received). Investor’s basis in the remaining acre (Acre 1) remains $200,000.
3. C. Investor realizes and recognizes a loss of $60,000 in Year 3 ($300,000 price paid by Investor divided by 3 = basis of $100,000 per acre; $100,000 basis less $40,000 sales price received = $60,000 loss); and a loss of $65,000 in Year 4 ($100,000 basis less $35,000 sales price received = $65,000 loss). Investor’s basis in the remaining acre (Acre 1) remains $100,000.
4. D. None of the above.

Answer rating: 100% (QA)

Answer 1 The correct answer is Option A Because Sale of 1000 shares by ... View the full answer